An Obamanable Housing Plan

18 February 2009 at 10:10 pm 5 comments

| Peter Klein |

So, let me get this straight. We’re in a major recession triggered by a collapse in the housing market, itself the inevitable result of government policies, led by Fannie Mae and Freddie Mac, to get the wrong loans to the wrong people so they could buy the wrong houses. The Obama Administration’s remedy is not to let Fannie and Freddie die a long-overdue and merciful death, but to prop them up, to give them additional powers, and to subsidize private mortgage lenders who extend yet more credit to more borrowers who can’t pay it back, thus making what might have been a temporary misallocation of the housing stock into a permanent one. Brilliant!

I am bewildered. But, more than that, I am angry. I can’t count how many news accounts I’ve seen about the poor, struggling homeowners who can’t make the monthly mortgage payment, are about to be foreclosed, and risk losing the family home, yard, white picket fence, and piece of the American Dream. But I haven’t heard one word about the poor, struggling renters, the ones who scrimped and saved and put money away each month towards a down payment, who kept the credit cards paid off, stayed out of trouble, and lived modestly, and thought that maybe, just maybe, the fall in housing prices meant that they, finally, could afford a house — maybe one of those foreclosed units down the street. These people are Bastiat’s unseen. For them, Obama’s housing plan is a giant slap in the face. To hell with the prudent. Party on, profligate! Now that’s what I call moral hazard.

Update: Here it is in pictures (from EconomiPicData via Wayne Marr).

Entry filed under: - Klein -, Bailout / Financial Crisis, Cultural Conservatism, Public Policy / Political Economy. Tags: .

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5 Comments Add your own

  • 1. Jean-Francois Bergeron  |  19 February 2009 at 9:32 am

    Mr Klein,

    In Quebec we have a Warren Buffet type of investor named Stephen Jarilowsky who, in a recent article, wrote about how the imprudents have caused pain to many. Being one who has always been an “unseen” all my life – 401K, money aside for children’s education, no credit card debt ever, owning a house I can afford to renovate – I’m beginning to feel robbed. Our supposedly right leaning conservative government has caved in to the opposition’s demand and will pour money in economy stimulating projects and plans a 80 billion deficit for the next three years. Like Xerxes’ messenger says in the movie 300 : This is madness !

    Where do we take the train to Misesland ?

  • [...] Peter Klein: I am bewildered. But, more than that, I am angry. I can’t count how many news accounts I’ve [...]

  • [...] were abetted by bad government policy), and it’s morally reprehensible. Peter Klein’s remarks on the plan reflect my beliefs: I am bewildered. But, more than that, I am angry. I can’t count how many news [...]

  • 4. Michael E. Marotta  |  20 February 2009 at 4:15 pm

    Thanks, Peter! Your analysis was spot-on and one I had not considered through all of this.

    Allow me to add an unintended consequence of home ownerhip: immobility. In times past, workers followed markets. Today, they cannot do that so easily. Approximately 70% of famiilies own their homes. In a downturn, they are frozen in place.

    Mike M.

  • 5. The Fed Hates Renters Too | The Beacon  |  11 February 2012 at 12:06 pm

    [...] renting. Aside from its efficiency effects, this of course has huge distributional consequences. I wrote about this in 2009 in the context of the bailouts of Fannie and Freddie, moves to prevent foreclosures, and [...]

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